Where To Invest For The Next 5 Years

With u.s. equities markets as volatile as ever, where do you go to find growth before the end of this decade? Our expert panelof money managers tells you what will be hot in 2010.

they buy, but if you select that way, you are going to end up with a portfolio full of very similar stocks.

Payne: I disagree. I agree with diversification but people will purchase and drink bottled water all day long, but when they invest, they will invest in an industry that they know nothing about.

Phelps: Well, I think it’s about expectations. You have to set realistic expectations. We have to realize that the ’90s was an anomaly. Investing really should be more like watching paint dry or watching grass grow. Maybe not that boring.

Alston Paige: But maybe you came in at the tail end of the ’90s and lost a lot of money. I think it’s a whole new day, and I prefer not to keep harkening back to the 1990s. So let’s talk about the future.

At Piedmont, we believe in the business cycle. We believe that we are about to enter a mid-cycle pause. We believe in a five-phase business cycle that includes two corrections. We have gone through the early phase and we are about to enter what we hope is going to be the late expansionary phase of the current business cycle. This summer, I think the GDP will probably decelerate; interest rates will continue to go up until the end of the year. And then you basically have completed what you might say is a pause that refreshes and sets up the market to take off for the next couple of years, which is what we are expecting.

Red flags to that outlook would be if the Fed continues to raise short rates going into the first of the year. If there is an absence of that negative, you could expect to position your portfolios for a multiyear market rally, and I would say that you should move away from a defensive posture. Come out of your staples and move more into the late-stage sectors, which would be technology, healthcare, and consumer stocks. You want to position yourselves for industries that typically do well at the end of the cycle and do well when rates are about to start going down.

Phelps: The only thing I would say is, for individual investors, if you have more than 10 or 12 stocks, it’s really tough to try to keep track. If you don’t have the time to do that, you really need to go to exchange-traded funds or mutual funds and diversify. You might put part of your portfolio into mutual funds and maybe five, 10, or 12 stocks that you really feel might have a chance to make you some money. For an individual investor, I think that’s a great approach.

BE: Let’s talk about long-term investing. What goes into your thinking when you’re trying to select a long-term investment for 2010?

Johnson: Our process has an emphasis on corporate bonds because that sector of the bond market has a yield advantage to treasuries and very good long-term growth prospects. We’re overweight in corporates. Within our allocation, I think consumer

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